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Sjoerd Hardeman

Lewis Dijkstra

The EU Regional Human Development Index

2014

Report EUR 26817 EN

European Commission

Joint Research Centre

Contact information

Sjoerd Hardeman

Address: Joint Research Centre, Via Enrico Fermi 2749, TP 361, 21027 Ispra (VA), Italy

E-mail: sjoerd.hardeman@jrc.ec.europa.eu

Tel.: ++39 0332 78 3976

https://ec.europa.eu/jrc

Legal Notice

This publication is a Science and Policy Report by the Joint Research Centre, the European Commission"s in-house science

service. It aims to provide evidence -based scientific support to the European policy-making process. The scientific output expressed does not imply a policy position of the European Commission.

Neither the European Commission nor any person

acting on behalf of the Commission is responsible for the use which might be made of this publication.

All images

© European Union 2014

JRC 90538

EUR 26817 EN

ISBN 978

-92-79-39861-2 (online)

ISBN 978-92-79-39862-9 (print)

ISSN

1831-9424 (online)

ISSN 1018-5593 (print)

doi:

10.2760/26355

Luxembourg: Publicati

ons Office of the European Union, 2014

© European Union, 20

14 Reproduction is authorised provided the source is acknowledged.

Printed in Luxembourg

Abstract

This report follows from a project entitled "Regional Human Development" on request of the D irectorate-General Regional

and Urban Policy (DG REGIO) of the European Commission. The objective of the project was to develop indicators that are

capable of measuring patterns and trends in human development across the regions of the EU member states. The main

contribution of this report lies in a proposal for conceptualizing and measuring human development at the European

regional level across multiple years using. The results of the EU-RHDI show a clear north-west/south-east divide across EU

regions when it comes to the overall index. Within countries differences exist as to regional performance in human

development. In general, capital city regions seem to outperform non -capital city regions within countries. This is readily seen across regions in east ern EU member states where the large intra-country differences in scores are largely driven by

the capital city outperforming other regions by a length. Zooming in on the results of the individual dimensions, we find in

general that the EU is especially characterized by a west/east divide. In health, southern regions are often outperforming

northern regions. However, southern regions" relative good performance in health contrasts sharply with their

underperformance in income and especially knowledge.

The EU Regional Human Development Index

(EU-RHDI)

Sjoerd Hardeman

European Commission, Joint Research Centre, Econometrics and Applied Statistics Unit, sjoerd.hardeman@jrc.ec.europa.eu

Lewis Dijkstra

European Commission, Directorate General for Regional Policies, Economic Analysis Unit lewis.dijkstra@ec.europa.eu

May 2014

i

Executive summary

This report follows from a project titled "Regional Human Development" on request of the Directorate-

General Regional and Urban Policy (DG REGIO) of the European Commission. The main objective of the overall project is to develop indicators that are capable of measuring and monitoring patterns and trends in human development across the regions of the EU member states. The measurement of human development goes well beyond measuring Gross Domestic Product (GDP). This has been recognized not only by the European Commission with its communication on "GDP and beyond" but also by such organizations like the OECD with its "Global Project on Measuring the Progress of

Societies".

Since the early 1990s the United Nations Human Development Index (UN-HDI) has been proposed as a viable alternative to GDP per capita to measure human development. Within the European context, however, the UN-HDI may not suffice for two reasons. One reason is that it measures human development at the aggregate country level only, while disparities across regions within the same

country might well be larger than disparities across countries at large. Another feature of the current

UN-HDI is that it tends to start from a definition of human development that is especially suited to describe the performance of developing countries. Taking human development as a relative concept (i.e. meaning that a country or region is more or less developed as compared to another country or

region), one might however question its applicability in a European context. In order to come to terms

with the general call for a measure of human development that goes beyond GDP, as done by the UN-

HDI, whilst taking into account the specificities of the European regional level, this report proposes a

composite indicator on human development that (i) is based on the three-partite structure of the UN-

HDI but (ii) is relevant to the European context, (iii) takes the region instead of the country as the basic

unit of analysis, and (iv) enables one to compare regions both cross-sectional as well as over time.

It follows that the main contribution of this report lies in a proposal for conceptualizing and measuring

human development at the European regional level across multiple years using a composite indicator

approach. On the conceptual part, though intuitively appealing, there exists no general consensus about

the nature of human development. Although the idea of human development is widely considered appraisive, due to its complex and open nature the concept of human development cannot be defined in a purely objective way. Instead, there exist multiple valid perspectives on human development. This report takes into account three such perspectives: the basic needs perspective, the utilitarian perspective, and the perspective of freedom. The basic needs approach takes a narrow view on human development in that it is restricted to those concrete aspects of human life that form absolute requirements for human beings to stay alive. In contrast, the utilitarian approach is much more abstract and focuses on the sum of mental achievements (i.e. happiness) for all persons taken together. Again in contrast, the perspective of freedom focusses on the substantive freedoms that people have to live the life they have reason to live. From the three perspectives on human development it is clear that there exists no general and conclusive consensus about the nature of human development. ii

Table 1. Variables, dimensions, and perspectives

Variable Description Dimension Perspective Direction

Infant mortality

The ratio of the total number of

deaths of children under one year of age during the year to the number of live births in that year.

The value is expressed per 1000

live births.

Health Basic needs Negative

Healthy life

expectancy

The number of years a person is

expected to live in good perceived health. Indicator combines mortality data with data on self-perceived health.

Health Functionings/utilitarian Positive

NEET

The percentage of the population

aged 18-24 that is not employed and not involved in further education or training.

Knowledge Basic needs Negative

General tertiary

education

Persons aged 25-64 with tertiary

education attainment (as the percentage of people of the given age class)

Knowledge Functionings Positive

Net adjusted

disposable household inc ome

A region"s net disposable income

weighted the region"s country gross adjusted disposable income divided by the region"s country net disposable income (per capita)

Income Functionings Positive

Employment

The share of employed persons of

15 year or older as a share of the

population of 15 year or older Income Functionings/capabilities Positive Acknowledging that different perspectives on human development exist does not mean that there are no resemblances among these perspectives whatsoever. For one thing, the United Nations Human Development Index (UN-HDI), in an attempt to measure human development at the country level, has already proven to be highly successful in informing the human development debate by measuring different aspects of human development. As such, from the concern that measuring human development in terms of GDP per capita is too narrow, the UN-HDI has been proposed to measure human development not only in terms of income but also by including health and knowledge as additional dimensions to human development. This report goes one step further and proposes a set of individual variables that grasp these different aspects from multiple perspectives on human development simultaneously. Whilst the UN-HDI is arguably centered on a perspective of freedom on human development, we sought to include alternative variables that also cover the basic needs and utilitarian perspective on human development. The extent to which multiple aspects of and perspectives on human development can actually be measured and aggregated into a single composite indicator crucially depends on the quality and iii availability of data. In total we considered a set of 22 variables to be included in the composite indicator. All variables have been retrieved from Eurostat. We assessed the correlation structure of these 22 variables. Composite indicators cannot be constructed based on poorly or anti-correlating variables. Based on the magnitude of the correlations, we decided to exclude 16 variables from the proposed composite indicator. From both our conceptual and statistical considerations we decided to

include 6 variables in the overall index; 2 variables in each dimension. The 6 variables are summarized

in Table 1. Methodologically, the construction of a composite indicator on human development involves three

steps: (i) the computation of missing values whenever data for a particular variable, region, or year is

absent; (ii) the transformation of variables as to make them comparable; and (iii) the aggregation and

weighting of the variables as to render one overall index. All variables include missing data for some

region-year combinations. We use a multiple imputation method to estimate missing data and obtain a complete time-series cross section data set at the regional level (7 years; 272 regions). Table 2 Structure and methodology of the EU Regional Human Development Index

Variable

Transformation Normalization Weighting

Aggregation

Variables Index

Healthy life expectancy -

Min-max

(based on forecasted values)

Equal weights Arithmetic Geometric

Infant mortality

Moving average;

Winsorization

NEET Moving average

General tertiary education -

Net adjusted household income

Employment rate -

In order to render all variables comparable we transformed them in three steps. First, for those variables that show considerable fluctuations across time, we took the 3-year moving average. Variables that showed considerable fluctuations are infant mortality and NEET. Second, in order for

outliers in the data not to drive the results of the composite indicator, we set the highest values to the

next highest ones up until the point that their distributions were no longer skewed. This method, called

Winsorization, is applied to infant mortality. Finally, we choose to normalize all variables using a min-

max approach as to assure that all variables are to range between 0 and 1. Minimums and maximums are set to observed and forecasted values. In addition, we take the global minimums and maximums; that is, across all years and regions as to make the index comparable both across time and space. Within the dimensions, variables have been aggregated using the arithmetic average. That is within a single dimension we allow for complete compensation of different aspects of that dimension. Instead, different dimensions are aggregated using the geometric average. That is, different dimensions are

only partially compensatory vis-à-vis each other as we do not want to allow good performance in say

iv income to fully compensate for bad performance in health. Weights are assigned equally across

variables within the dimensions and across the dimensions within the overall index (see Table 2 for a

summary). Figure 1. Comparison of EU-RHDI scores among EU regions (year 2010; 272 regions)

Note: the country regional average and the EU regional average have been calculated as the population weighted average of

the scores of all regions in respectively that country and the EU. The results of the EU-RHDI show a clear north-west/south-east divide across EU regions when it comes

to the overall index (see Figure 1). Within countries differences exist as to regional performance in

human development. This is especially for the United Kingdom, Spain, France, Italy, Germany, and

Belgium. Capital city regions generally outperform non-capital city regions within countries. This is

readily seen across regions in eastern EU member states where large intra-country differences are

largely driven by the capital city outperforming other regions by a length. As to the ranking of the EU-

RHDI, we find northern and western regions of the EU topping the rank while southern and especially eastern EU regions are found at the bottom. While the bottom-20 regions rank generally low on all

dimensions and in all years, for the top-20 regions we find volatility in both the underlying dimensions

and across years. Zooming in on the results of the individual dimensions, we find in general that the EU

v

is especially characterized by a west/east divide. In health, southern regions are often outperforming

northern regions. However, southern regions" relative good performance in health contrasts sharply with their underperformance in income and especially knowledge.

The statistical coherence and robustness of the index is addressed in order to assess the volatility of

the proposed composite indicator to the particular methodological choices made throughout its

construction. As indicated by principal component analysis, within the overall index there is one latent

component indicating that the different dimensions potentially describe one latent phenomenon; that is

human development. Arguably, the composite indicator is volatile as to the choice of variables included.

Although the EU-RHDI correlates extremely high with all alternatives considered, the ranking of

individual regions might change when considering alternative sets of variables. Overall we believe that

the proposed index is justified based on both conceptual and statistical considerations. From the analysis and results presented in this report we make two recommendations. One recommendation revolves the use of the proposed composite indicator on human development as an input to the broader debate on measuring and monitoring human development at the regional level. We take the proposed composite indicator on human development as a necessary but also preliminary first step to inform development policymakers. Human development is an important issue, an issue that concerns each and every citizen of the EU. As it concerns everyone but at the same time is essentially contested, we deem it necessary if not inevitable to include different voices in the construction of a valid indicator on human development. The validity of an indicator does not just depend on its statistical soundness rather than on the indicator being accepted by the community of people it seeks to address. Another recommendation concerns the necessity of collecting and using alternative data and methods

for the analysis. Some data might be nearby; others further away, not to say out of range altogether.

The proposed index still covers some perspectives on human development better than others mainly

because of a lack of data. Most in particular, the utilitarian perspective is covered by one variable only

and therein only partly, rendering that perspective virtually absent in our measurement of human

development. However, and notwithstanding the difficulties in collecting alternative data that capture

human development at the EU regional level, measuring and monitoring human development

appropriately would greatly benefit from alternative data becoming available. As to using alternative

methods, given that the results of the robustness analysis show that the proposed composite indicator

is sensitive to particular methodological choices, these choices need to be discussed more thoroughly

and might need to be revised in the future. 7

Contents

Executive summary ........................................................................................................................................................................................ i

Contents .............................................................................................................................................................................................................. 7

1. Introduction ................................................................................................................................................................................................. 9

1.1. Background of the project ......................................................................................................................................................... 9

1.2. Contribution of the report ....................................................................................................................................................... 10

2. Defining human development: three perspectives ............................................................................................................ 13

2.1. The basic needs perspective ................................................................................................................................................. 13

2.2. The utilitarian perspective ...................................................................................................................................................... 14

2.3. The perspective of freedom: capabilities and functionings ................................................................................. 16

2.4. Without conceptual agreement, does measurement make sense? ................................................................ 19

3. Measuring human development ................................................................................................................................................... 23

3.1. From GDP to the United Nations Human Development Index ........................................................................... 23

3.2. The United Nations Human Development Index (UN-HDI) ................................................................................... 24

3.2.1. Changes in the UN-HDI throughout the years ................................................................................................... 25

3.2.2. Critiques on the UN-HDI ................................................................................................................................................. 27

3.2.3. The UN-HDI and the three theoretical perspectives on human development ................................. 28

3.3. From the UN-HDI to a European Regional Human Development Index ....................................................... 29

4. Selection of variables ......................................................................................................................................................................... 31

4.1. Conceptual considerations: validity of the data ......................................................................................................... 31

4.1.1. Variables considered under the health dimension .......................................................................................... 31

4.1.2. Variables considered under the knowledge dimension ................................................................................ 33

8

4.1.3. Variables considered under the income dimension ........................................................................................ 35

4.2. Statistical considerations: extent and reliability of the data .............................................................................. 37

5. Methodology ............................................................................................................................................................................................ 45

5.1. Imputation of missing data ................................................................................................................................................... 45

5.2. Data transformations ................................................................................................................................................................ 48

5.3. Aggregation and weighting .................................................................................................................................................... 50

6. Results ......................................................................................................................................................................................................... 53

6.1. Geographical distribution of scores .................................................................................................................................. 53

6.2. Leaders and followers .............................................................................................................................................................. 59

6.3. EU-RHDI versus GDP per capita ........................................................................................................................................... 61

7. Statistical coherence and robustness assessment ............................................................................................................ 67

7.1. Statistical coherence: correlation and principal component analysis ............................................................ 67

7.2. Robustness assessment .......................................................................................................................................................... 69

8. Conclusion ................................................................................................................................................................................................. 73

8.1. Summary .......................................................................................................................................................................................... 73

8.2. Discussion and recommendations ..................................................................................................................................... 74

Acknowledgements .................................................................................................................................................................................... 77

References ...................................................................................................................................................................................................... 79

Appendix A ...................................................................................................................................................................................................... 85

Appendix B ...................................................................................................................................................................................................... 89

9

1. Introduction

1.1. Background of the project

This report follows from a project entitled "Regional Human Development" on request of the Directorate-General Regional and Urban Policy (DG REGIO) of the European Commission. The main

objective of the overall project is to develop indicators that are capable of measuring and monitoring

patterns and trends in human development across the regions of the EU member states. Many aspects of human development have a straightforward link to policies most of which are defined at regional

and local level. In order to inform policy properly, it is important to know how we can measure human

development. The measurement of human development goes well beyond measuring Gross Domestic Product (GDP). This has been recognized by many, including the Organization for Economic Co-operation and Development (OECD) with its Global Project on Measuring the Progress of Societies and the European Commission Communication 'GDP and Beyond: Measuring Progress in a Changing World". One of the most influential initiatives was the "Commission on the Measurement of Economic Performance and

Social Progress" headed by Professors Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi which, in its

final report from autumn 2009, called for a "shift [of] emphasis from measuring economic production

to measuring people"s well-being" (Stiglitz et al., 2009, p.10). Above all, and whatever notion one uses

to describe human development, this is a call for going beyond monetary and market aspects alone in measuring it. Since the early 1990s the United Nations Human Development Index (UN-HDI) has been proposed as a viable alternative to GDP per capita to measure human development. Within the European context, however, the UN-HDI may not suffice for two reasons. One reason is that it measures human development at the aggregate country level only, while disparities across regions within the same country might well be larger than disparities across countries at large. Hence we believe that an investigation of human development at the European regional level is warranted.

Another feature of the current UN-HDI is that it tends to start from a definition of human development

that is especially suited to describe the performance of developing countries. Taking human

development as a relative concept (i.e. meaning that a country or region is more or less developed as

compared to another country or region), one might however question its applicability in a European context. For one thing, using for example life expectancy as the only variable measuring progress in health is less discriminatory on a European level than it is on a global level. In addition, what is considered as progress in health might be different on a European level as compared to the global level.quotesdbs_dbs18.pdfusesText_24